NORTH CAROLINA JOURNAL OF NORTH CAROLINA JOURNAL OF

INTERNATIONAL LAW INTERNATIONAL LAW

Volume 15 Number 1 Article 8

Winter 1990

In re Walsh and Pollard: Designing a Way around U.S. Immigration In re Walsh and Pollard: Designing a Way around U.S. Immigration

Policy Policy

Phillip Kevin Woods

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Recommended Citation Recommended Citation Phillip K. Woods, In re Walsh and Pollard: Designing a Way around U.S. Immigration Policy, 15 N.C. J. INT'L L. 151 (1990). Available at: https://scholarship.law.unc.edu/ncilj/vol15/iss1/8

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In re Walsh and Pollard: Designing a Way AroundU.S. Immigration Policy

I. Introduction

The United States provides a favorable visa status' to particularforeign investors who wish to enter the U.S. labor force and maintaintheir nonimmigrant status. 2 The E-2 visa allows a foreign investor orits employee to work in the United States without fear of quota re-strictions3 or the obligation to pay U.S. taxes on worldwide income. 4

The United States benefits from job opportunities expanded throughthis foreign investment.5

Although the E classification smacks of an open-door policy, it is

I The favorable option referred to is the E-2 visa, also known as the treaty investorvisa. A "treaty investor" is defined as:

[A]n alien entitled to enter the United States under and in pursuance of theprovisions of a treaty of commerce and navigation between the United Statesand the foreign state of which he is a national . . . (ii) solely to develop anddirect the operations of an enterprise in which he has invested, or of an en-terprise in which he is actively in the process of investing, a substantialamount of capital.

8 U.S.C. § 1101(a)(15)(E)(ii) (1988).2 There are actually two treaty visas. The E- I treaty trader visa is provided to aliens

who wish to engage in substantial trade that is principally between the United States andthe treaty country. Id. § 1101 (a)(15)(E)(i). See infra notes 36-37 and accompanying text.Aliens seeking treaty trader or treaty investor status must be nationals 6f one of the follow-ing nations having treaties of friendship, commerce, and navigation with the UnitedStates:

I. El and E2 Eligibility:Argentina, Austria, Belgium, Canada, China (Taiwan), Colombia, Costa

Rica, Ethiopia, France, Germany (FRG), Honduras, Iran, Italy, Japan, Korea,Liberia, Luxembourg, the Netherlands, Norway, Oman, Pakistan, Paraguay,Philippines, Spain, Suriname, Switzerland, Thailand, Togo, United King-dom, Yugoslavia.2. E-I Eligibility Only:

Bolivia, Brunei, Denmark, Estonia, Finland, Greece, Ireland, Israel,Latvia, Turkey.

DEPT. OF STATE, 9 FOREIGN AFFAIRS MANUAL § 41.51, Exhibit 1 (1988) [hereinafter cited asF.A.M.]. The nationality of a firm is determined by the nationality of those owning at least50 % of the stock of the corporation regardless of the place of incorporation. The nation-ality of small business companies is determined by the nationality of those owning theprincipal amount of the business. Id. § 41.51 N3. 1. For a comparison of the E- I and E-2visas, see Fragomen & Robosson, The Foreign Investor: Current Approaches Toward UnitedStates Immigration Law, 18 VAND. J. TRANSNAT'L L. 335, 347-50 (1985).

3 See 1 C. GORDON & S. MAILMAN, IMMIGRATION LAW AND PROCEDURE § 12.01 (rev.ed. 1989).

4 Fragomen & Robosson, supra note 2, at 341.5 Id. at 345. The State Department indicates that one way an applicant may establish

eligibility for treaty investor status is by showing "that the investment will expand job

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subject to limitations. Before entering the United States under thisclassification, an investor must first establish that his domestic invest-ment is substantial, 6 not marginal, 7 and that any employees broughtover to establish the new enterprise must possess supervisory skillsor "special qualifications ' 8 essential to the enterprise and which can-not be obtained from the U.S. labor force. These limitations echothe congressional concern that the U.S. labor force be free from anythreat of foreign competition.9

Prior to 1988, the "special qualifications" requirement for E-2classification did not exist.10 The advent of this new category in therecodified regulations added a new consideration to the analysis ofwhether an investment was substantial enough for treaty investor sta-tus. In re Walsh and Pollard I1 was the first case dealing with this newimmigration issue. This Note examines whether the holding in thatcase was true to the goals of immigration policy.

II. Background of In re Walsh and Pollard

Applicants Walsh and Pollard were British automotive designersemployed by the British automotive design firm IAD Modern Design,Ltd. (IAD, Ltd.).12 The designers came to the United States pursu-ant to a contract between IAD, Ltd. and General Motors Corporation(GM) for the purpose of redesigning GM's line of cars in a "smaller,more European fashion."'13 GM required the services of foreign spe-cialists because of a nationwide shortage of qualified domestic auto-motive designers. 14 The designers were assigned to work on GMprojects at Hydra-matic, a GM subsidiary in Michigan. 15 IAD, Ltd.paid the designers at an hourly rate with a daily living allowance plusbonuses, which GM reimbursed to IAD, Ltd. by purchase order at ahigher hourly rate. 16 To facilitate and expand contract relations be-

opportunities locally." 9 F.A.M. § 41.51 N5.4. The State Department, however, does notprovide guidance as to what constitutes sufficient local job expansion.

6 22 C.F.R. § 41.51(b)(1) (1989).7 Id.8 22 C.F.R. § 41.51(c) (1989).9 See In re Udagawa, 14 I & N Dec. 578 (Bd. Imm. App. [hereinafter BIA] 1974). The

BIA stated that "[i]n section 212(a) (14) of the Immigration & Nationality Act... Congresshas evinced a desire to protect American labor from excessive job competition whichmight be generated by the presence in the United States of numerous skilled and unskilledlaborers." Id. at 580. For further discussion of the legislative policy behind the treatyinvestor visa, see Note, The Treaty Investor Visa: Cure or Band Aid for the Ills of Foreign Inves-tors?, 15J. LEGIS. 45 (1988).

10 In 22 C.F.R. § 41.41(a) (1987), it was provided that an employee of a treaty inves-tor could receive E-2 classification only if he were hired in a "responsible capacity."

I I & N Interim Dec. No. 3111 (BIA 1989).12 Id. at 2.'3 Id.14 Id. at 3.15 Id.16 Id.

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tween the British firm and U.S. automobile manufacturers, IAD, Ltd.formed a Michigan corporation, IAD Modern Design, Inc. (IAD,Corp.), a wholly owned subsidiary of IAD, Ltd.' 7 IAD, Corp. subse-quently rented office space, purchased office furniture, hired twoU.S. citizens to assist the British designers in their relocation andestablished a corporate bank account of $15,000.18

Walsh and Pollard sought admission to the United States as em-ployees of a nonimmigrant treaty investor under the Immigrationand Nationality Act of 1952.19 The U.S. Immigration and Naturali-zation Service (INS) sought exclusion of these aliens, contendingthat the British employer had not made a substantial investment inthe United States as required by the Act.20 INS contended that aminimum dollar amount was required to meet the substantialitytest.2 ' INS further contended that the employees of the treaty inves-tor were not coming to the United States to "develop and direct" theinvestment as required by the Act. 2 2 The Chief Immigration Judgerejected INS' contentions and terminated the exclusion proceed-ings.2 3 The Board of Immigration Appeals (BIA) affirmed the ChiefJudge's decision and dismissed the appeal. 24

The BIA rejected INS' argument that the British firm had notinvested the minimum dollar amount necessary to meet the substan-tiality test, noting that no minimum dollar investment requirementwas "published or reflected in any written material." 25 To establishthe substantiality of the British firm's investment, the BIA appliedthe proportionality26 and marginality2 7 tests proposed by the De-partment of State. Under the two-pronged proportionality test, theamount invested is weighed against 1) the total value of the enter-prise, or 2) the amount normally considered necessary to establish aviable enterprise of the nature contemplated. 28 Under the marginalenterprise test, the amount invested must reap more than a mere

17 Id.18 Id. at 4.19 Pub. L. No. 82-414, 66 Stat. 163 (1952) (codified at 8 U.S.C. §§ 1101-1503

(1988)).20 I & N Interim Dec. No. 3111 at 4.21 Id. at 11.22 Id. at 4.

23 Id.24 Id. at 14.25 Id. at 11. Although there is no express or explicit statutory language requiring a

minimum dollar amount, the State Department has established the arbitrary criterion thatan investor must invest at least one-half of the business' value. See State Department Cable(Mar. 13, 1982), noted in Fragomen, supra note 1, at 345 n.41; see, e.g., A. FRAGOMEN, A. DELRAY & S. BELL, 1989 IMMIGRATION PROCEDURES HANDBOOK 183 (1989) (recommending$100,000 as an absolute minimum for investment).

26 9 F.A.M. § 41.51 N5.3.27 Id. N5.4.28 Id. N5.3-1.

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livelihood for the investor.2 9 Finding lAD, Ltd.'s investment suffi-cient to establish a profitable and viable business in the UnitedStates, the BIA held that the British firm had met the requirementsof a treaty investor under the second prong of the proportionalitytest.30 The BIA further held that because the firm expected substan-tial revenues from its investment it was not engaged "in a marginalenterprise solely for the purpose of earning a living." 3 1

The BIA flatly rejected INS' contention that Walsh and Pollardshould be excluded on the ground that they were not coming to "de-velop and direct" the investment of the treaty investor, citing thenew regulation which allows classification of an employee as E-2 if"the employee has special qualifications that make the services to berendered essential to the efficient operation of the enterprise. '3 2

Noting that the older of the two designers had over thirty years ofdesign experience and that the younger one possessed "unique"computer expertise, the BIA had no difficulty establishing the aliens'special qualifications.3 3 Basing its decision upon these considera-tions the BIA allowed Walsh and Pollard admission to the UnitedStates.34

III. Applicable Immigration Laws

The treaty investor and treaty trader visas derive their namefrom the treaties of friendship, commerce, and navigation enteredinto by the United States and certain foreign nations.3 5 Pursuant tothe purposes of these treaties nationals of these countries are eligiblefor favorable E-visa status. The E-2 visa differs from the E-1 visa inthat the former is granted to aliens entering the United States to in-vest a substantial amount of capital,3 6 while the latter is granted tothose aliens entering to engage in substantial trade between theUnited States and their home country.3 7 The E-2 visa is also the onlynonimmigrant category based solely upon investment.3 8 The greatadvantage of the E-2 visa is that it "affords the investor the opportu-nity to enter the United States, manage his investment, compensate

29 Id. N5.4.3o In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 12.31 Id. at 12-13.32 22 C.F.R. § 41.51(c) (1989).33 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 13.34 Id. at 14.35 See supra note 1.36 See supra note 18.37 A "treaty trader" is defined as:

[A]n alien entitled to enter the United States under and in pursuance of theprovisions of a treaty of commerce and navigation between the United Statesand the foreign state of which he is a national .. .(i) solely to carry on sub-stantial trade, principally between the United States and the foreign state ofwhich he is a national.

8 U.S.C. § 1 l01(a)(15)(E)(i) (1988).38 Fragomen & Robosson, supra note 2, at 340.

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himself with any salary he deems appropriate, and avoid UnitedStates taxation on worldwide income by remaining outside theUnited States for enough days not to qualify as a resident for taxpurposes." '3 9 Another advantage is the absence of any requirementto file a petition with the INS prior to receiving E status. 40 Instead,the alien submits documentation directly to the consular office.4 ' E-2 classification may then be renewed yearly subject to review by theconsular office. 42 The treaty investor's spouse and minor childrenare allowed to enter the United States under the same classificationregardless of their nationality. 43 As an additional incentive to for-eign investors, E-2 status does not require that the alien maintain aresidence abroad. 44 All that is required is a present expression of anintent to return home when the visa expires. 45

Before receiving E-2 status an alien must submit substantial sup-porting documentation to satisfy the consular officer that he qualifiesunder the Act.46 This documentation must clearly establish the fol-lowing: (1) the enterprise or firm has the nationality of the treatycountry; (2) the applicant intends to depart when E status termi-nates; (3) the investment involved is substantial; (4) the applicant hasinvested or is actively in the process of investing; (5) the enterprise isa real and operating commercial enterprise; (6) the investment ismore than a marginal one solely for earning a living; (7) the appli-cant is in a position to "develop and direct" the enterprise; and (8) ifthe applicant is an employee of a treaty investor, the applicant isqualified as a manager or a highly trained and specially qualified em-ployee. 47 If the evidence fails to establish any one of these elements,then the applicant is denied E-2 status.

It is critical that the alien establish that he has invested or is ac-tively in the process of investing a substantial amount of capital in abona fide enterprise in the United States. Capital involved in theinvestment process must be placed at commercial risk in hopes ofgenerating a return.48 Mere possession of uncommitted funds in abank account does not qualify,49 although a reasonable amount ofcash held in a bank account to be used for routine business purposes

39 Id. at 341.40 22 C.F.R. § 41.51(b) (1989).41 1 C. GORDON & G. GORDON, IMMIGRATION LAW AND PROCEDURE: PRACTICE AND

STRATEGY § 37.05 (1989); 22 C.F.R. § 41.51(b) (1988).42 8 C.F.R. 2 14.2(e) (1989).43 22. C.F.R. § 41.51(d).44 9 F.A.M. § 41.51 N3.2.4 5 Id.46 For an inventory of required and suggested documentation, see C. GORDON & G.

GORDON, supra note 41, § 37.05.47 9 F.A.M. § 41.51 N2.48 Id. N5.1-1.49 Id. N5.1-2.

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might be counted as investment funds.50 Payments for leases andpurchases of property or equipment may be used in calculating theinvestment.5 1

Further, the enterprise must be "real and commercially active,producing some service or commodity.' '5 2 It cannot be a "paper or-ganization or an idle speculative investment held for potential appre-ciation in value .... ",53 When a new enterprise is the object of theinvestment the investor faces a greater burden of establishing theinvestment's validity; mere intent to invest will not establish treatyinvestor status.54 It has been argued that "[t]he safest course of ac-tion for the alien investor is to form a corporation or other legalentity, rent premises, employ, contingently employ or show plans toemploy persons from the domestic labor force, and place the capitalin an account under the name of the corporation. ' 55

To test the substantiality of the investment, the Department ofState has propounded a "proportionality test," in which the consularofficer weighs the amount invested against either: 1) the total valueof the enterprise in question, or 2) the amount normally considerednecessary to establish a viable enterprise of the nature contem-plated.56 Only one of these criteria need be satisfied in order to es-tablish a "substantial investment."' 57 The first criterion involvesweighing evidence of the actual value of an established business. 58

Establishing the proportion of the investment to the total value ofthe enterprise is an important step in determining whether the appli-cant has a controlling interest in the enterprise. "An interest of 50percent or less usually will mean that the applicant does not have therequisite control, particularly in small enterprises. ' 59 Purchase priceor tax valuation are recommended evidence of investment value.60

The second criterion is more difficult to assess. In this case the con-sular officer is directed to draw upon her personal knowledge of the

50 Id. See In re Kung, 17 I & N Dec. 260 (Comm. 1980) (where evidence showed

applicant had available an additional $46,000 in reserve funds, it could not be said that hehad invested in a marginal business solely for the purpose of earning a living); In re Lee, 15I & N Dec. 187 (BIA 1975) (applicant denied admission where there was no evidence thatapplicant had the financial ability to make an additional $35,000 investment in theenterprise).

51 9 F.A.M. § 41.51 N5.1-3.52 Id. N5.2.53 Id.54 Id. N5.1-1.

55 Fragomen & Robosson, supra note 2, at 344.56 9 F.A.M. § 41.51 N5.3-1.57 Id.58 Id. N5.3-2.

59 Id. N5.5. See Choi v. INS, 798 F.2d 1189 (8th Cir. 1986) (case remanded for con-sideration of whether applicant owned over 60% of the enterprise); In re Lee, 15 I & NDec. 187 (Reg. Comm. 1975) (applicant failed to show an ability to invest additional capi-tal in order to bring his investment to 51% of the enterprise).

60 9 F.A.M. § 41.51 N5.3-2.

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U.S. business scene in order to evaluate whether the proposed in-vestment is reasonable by U.S. standards. 6' This is most often thecase where a new business enterprise is being formed. 62

An applicant for treaty investor status must also prove that he isnot investing in a marginal enterprise solely for the purpose of earn-ing a living.63 The applicant may establish this requirement with ashowing that the investment will expand job opportunities in the lo-cal area or by showing that the investment was sufficient to ensurethat the applicant's primary function will not be that of a skilled orunskilled laborer.64 This is best established when the applicant hassubstantial income from other sources and does not depend uponthe investment enterprise for a livelihood.65 Better stated, this prop-osition means that "the return on the investment, rather than theamount invested, and the likelihood that the investment will tend toexpand job opportunities in the domestic labor market are indicia ofthe substantiality of the investment."'66

The treaty investor is not the only alien eligible for E-2 classifi-cation. E-2 status may be granted to an employee of a treaty investorprovided that the applicant qualifies as a manager or a highly trainedand specially qualified employee. 67 Before approving an applicant'semployee on the executive or supervisory ground the consular of-ficer should consider the following factors: the applicant's positionand duties, the degree of control and responsibility the applicant will

61 The notes to the Foreign Affairs Manual indicate that this test is subjective:

[E]valuating the investment in relation to the amount normally considerednecessary to establish a viable enterprise is less susceptible to precise calcula-tion. Here the consular officer must draw on personal knowledge of the U.S.business scene to judge whether the amount the alien proposes to invest isreasonable for that type of business. If in doubt, the consular offices may seekadditional evidence to help establish what would be a reasonable amount.Such evidence may include letters from chambers of commerce or statisticsfrom trade associations.

Id. The Code of Federal Regulations offers no additional guidance to the consular officer:(b) Treaty investor. An alien is classifiable as a nonimmigrant treaty investor(E-2) if the consular officer is satisfied that the alien qualifies under the provi-sions of INA 101(a)(15)(E)(ii) and that the alien:

(1) Has invested or is actively in the process of investing a substantialamount of capital in a bonafide enterprise in the United States, as distinctfrom a relatively small amount of capital in a marginal enterprise solely forthe purpose of earning a living; and

(2) Intends to depart from the United States upon the termination of E-2status.

22 C.F.R. § 41.51 (1989). For further discussion of the highly subjective nature of thistest, see infra notes 136-39 and accompanying text.

62 See In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 12; 9 F.A.M. § 41.51N5.3-1.

63 9 F.A.M. § 41.51 N5.4.64 Id.65 Id. See In re Kung, 17 1 & N Dec. 260 (Comm. 1980) (evidence showed applicant

had an additional $46,000 in reserve funds on which to draw).66 Fragomen & Robosson, supra note 2, at 345.67 9 F.A.M. § 41.51 N3.4-2 to N3.4-3.

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exercise, the number and skill levels of the applicant's subordinates,the level of pay, and the applicants supervisory experience. 68 Fur-ther, the consular officer must ensure that the position is a "principaland primary function" and not an "incidental or collateral func-tion."6 9 Positions requiring key supervisory responsibility for a largesection of firm operations with only minimal routine staff work gen-erally qualify for E-2 status.70 Positions requiring primarily routinework with incidental supervision of low-level employees would notqualify. 71

Prior to the recodification of the regulations, treaty investors didnot have the "special qualifications" option. 72 The former regula-tion only allowed an employee employed in a "responsible capacity"to be classified E-2. 73 Now the consular officer must consider "thedegree of proven expertise of the alien in the area of specialization,the uniqueness of the specific skills, the length of experience andtraining with the firm, the period of training needed to perform thecontemplated duties, and the salary the special expertise cancommand.''

74

The standards for supervisory personnel and specially qualifiedpersonnel are the same except for personnel needed for the "start-up" of an enterprise. 75 These start-up employees "derive their es-sentiality from their familiarity with the overseas operation ratherthan the nature of their skills."' 76 This is usually the case where anestablished foreign firm attempts to enlist foreign specialists to es-tablish its U.S. operation, usually for a period of up to a year.77

Highly trained and specially qualified personnel may be classi-fied as E-2 as long as they are employed by the treaty investor totrain or supervise personnel employed in manufacturing, mainte-nance, and repair functions, and the treaty investor establishes that itcannot obtain the services of qualified U.S. technicians. 78 There is,however, a presumption that the treaty investor will train U.S. work-ers within a reasonable time to replace the alien technicians. 79 It isthe duty of the consular officer to remind the treaty investor of thisobligation when it becomes apparent that the treaty investor is re-peatedly requesting E classification for alien specialists.80

68 Id. N3.4-2(a).69 Id. N3.4-2(b).70 Id.71 Id.72 See 22 C.F.R. § 41.41(a) (1987).73 Id.74 9 F.A.M. § 41.51 N3.4-3(a).75 Id. N3.4-3(b).76 Id.77 Id.78 Id. N3.4-3(c).79 Id. N3.4-3(d).80 Id.

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IV. Treaty Investor Cases

One obvious concern throughout the regulations is to preventthe circumvention of the "congressional policy of protecting Ameri-can labor from undesirable job competition." 8' That concern isechoed in cases examining the admission of treaty investors into theUnited States prior to the decision in Walsh.8 2 Whenever the judicialbody felt that the U.S. labor force was threatened, the applicant wasdenied admission.

Receitly, the Eighth Circuit Court of Appeals in Choi v. INS,83

examined a proposed partnership agreement between Lee, a nativeof Korea and nationalized citizen of the United States, and Choi, acitizen of Korea.8 4 The agreement called for Choi to invest $40,000to open and manage an oriental gift shop in Springfield, Missouri.8 5

When Choi's initial treaty investor status expired at the end of a year,he applied to extend his temporary stay.8 6 The District Director ofthe INS denied the application on the ground that Choi did notsolely develop and direct the operation of the enterprise.8 7 TheEighth Circuit remanded the matter to the INS for failure to considerother evidence of Choi's income when analyzing Choi's controllinginterest in the enterprise.8 8 The Eighth Circuit stated that "in lightof the complexity involved in analyzing the 'develop and direct issue'

[i]t is clear that the alien's actual control over the business affairsof that enterprise is a key element."8 9

Degree of control was also an issue in In re Kung.9 0 The appli-cant, a Chinese national, purchased a franchise restaurant in Califor-nia for $53,000. 9 1 Previously classified as a nonimmigrant studentunder F-1 status, the applicant now sought a change to treaty inves-tor status. 92 The District Director denied this change on groundsthat Kung failed to show his investment represented more than asmall amount of capital in a marginal enterprise and that Kung failedto demonstrate an ability to control the enterprise. 93 Noting that

81 In re Udagawa, 14 I & N Dec. 578, 582 (BIA 1974).82 See, e.g., Choi v. INS, 798 F.2d 1189 (8th Cir. 1986); In re Kung, 17 I & N Dec. 260

(Comm. 1980); In re Nago, 16 I & N Dec. 446 (BIA 1978); In re Lee, 15 I & N 187 (Reg.Comm. 1975); In re Udagawa, 14 I & N Dec. 578 (BIA 1974); In re Tamura, 10 1 & N Dec.717 (Reg. Comm. 1964); In re Kobayashi and Doi, 10 1 & N Dec. 425 (Dep. Assoc. Comm.1963).

83 798 F.2d 1189 (8th Cir. 1986).84 Id. at 1190.85 Id.86 Id.

87 Id. at 1191.88 Id. at 1193.89 Id.90 17 1 & N Dec. 260 (Comm. 1980).91 Id. at 261.92 Id.93 Id.

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Kung had produced evidence that he had an additional $46,000 inreserve funds, the Commissioner rejected the Director's first asser-tion by stating "[i]t can hardly be said that such a person has in-vested in a marginal business solely to earn a living."'94 Addressingthe question of control, the Commissioner held that although therewere certain limiting factors imposed by the franchise agreement,they were overshadowed by nonlimiting factors allowing the appli-cant control of his enterprise. 95

In Kung, the District Director's conclusion that the applicant hadnot demonstrated an ability to control his investment was based inpart on "the fact that the enterprise was a franchised restaurant...and that the franchiser . .. imposed strict conditions on the fran-chisee . .. that effectively reduced the degree of control over theoperation of the restaurant to the point where the applicant couldnot develop and direct the enterprise. '9 6 The Commissioner re-jected these allegations, finding that any "limiting factors imposed[on] the franchisee to develop, direct, and protect his investment areovershadowed by the nonlimiting factors." 9 7

The limiting factors considered by the Commissioners were:1. 3.5 percent of the gross sales must be expanded in advertising.2. The franchisee must use only the batter mix provided byfranchiser.3. The franchisee may sell only those products approved by thefranchiser.4. The franchiser may terminate for default of the agreement andthereafter has the option of purchasing the business.9 8

In considering the nonlimiting factors, the Commissioner noted thatthe franchisee received the full benefit from the local advertisingmandated by the first condition. 9 Despite the second requirementthat the batter mix must be provided by the franchisee, the Commis-sioner found that all other services, supplies, products, fixtures, orany other goods could be purchased on the open market. !00 TheCommissioner also found that the third condition did not restrict thefranchisee's retail pricing of these products, nor did it preclude thefranchisee's submission of new or different products for approval tothe franchiser.' 0 ' Finally, the Commissioner found that the fran-chisee could prevent default by correcting any infringement during a

94 Id. at 262.95 Id. at 263-64. The Regional Commissioncr in Kung found "no fault with the pre-

cept set forth in In re Lee ... that an investor must show that he has the ability to controlthe investment, thereby fulfilling that part of the definition of a treaty investor contained insection 101(a)(15)(E)(ii) of the Act." Id. at 262.

96 Id.97 Id. at 263-64.98 Id. at 263.99 Id.

100 Id.101 Id.

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fifteen-day grace period.'t0 2 Further, since the franchise appearedfreely transferable to a third party as evidenced by the applicants in-stant purchase, it appeared that the franchisee had the right of firstrefusal only.' 0 3 The Commissioner cited additional favorable factorsthat were instrumental in his decision. These factors included thefranchisee's powers to hire and fire employees, set wage scales, andset business hours.10 4

Both Choi 105 and Kung 10 6 cite In re Lee' 0 7 for the propositionthat "[i]n order for an investor to develop and direct the operationsof an enterprise, it must be shown that he has a controlling interest;otherwise, other individuals who do have the controlling interest arein a position to dictate how the enterprise is to be developed anddirected."' 1 8 In Lee, the evidence indicated that the applicant hadinvested only $10,000 in a restaurant valued at $64,000.109 The ap-plicant asserted that at some unspecified time in the future he wouldincrease his investment to $35,000 and, as a result, he would have acontrolling interest in the enterprise."i 0 Noting that there was a lackof evidence supporting the applicant's financial ability to make theadditional investment, the Regional Commissioner found Lee's con-tention that he would have a controlling interest in the enterprise"too speculative," and denied Lee admission."I '

Other cases involving E-2 classification have dealt with the ad-missibility of employees of the treaty investor who are employed in a"responsible capacity." These cases have dealt exclusively with theadmission of Oriental restaurant personnel." 1

2 In In re Nago, 13 theBIA granted admission to a highly trained chef brought to theUnited States to enable other employees to become proficient in"Nabemono" cooking because he was employed in a responsible ca-pacity."l 4 In In re Tamura,115 the Regional Commissioner granted

102 Id.103 Id.104 Id. at 264.105 Choi v. INS, 798 F.2d 1189, 1193 (8th Cir. 1986) (quoting In re Lee, 15 I & N Dec.

187, 189 (Reg. Comm. 1975)).106 In re Kung, 17 1 & N Dec. 260, 262 (Comm. 1980) (quoting In re Lee, 15 1 & N Dec.

187, 189 (Reg. Comm. 1975)).107 15 I & N Dec. 187 (Reg. Comm. 1975).108 Id. at 189.109 Id. at 190.110 Id.'I Id.112 See In re Nago, 16 I & N Dec. 446 (BIA 1978); In re Udagawa, 14 I & N Dec. 578

(BIA 1974); In re Tamura, 10 1 & N Dec. 717 (Reg. Comm. 1964); In re Kobayashi and Doi,10 I & N Dec. 425 (Dep. Assoc. Comm. 1963).

113 16 I & N Dec. 446 (BIA 1978).114 Id. at 448. The BIA considered the following facts in their determination of

whether the applicant was to serve in a responsible capacity:The applicant will cook in the "Nabemono" style and train other employeesof the restaurant in this form of cooking. It appears that "Nabemono" chefsare scarce in the United States and that the applicant's employer has been

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admission to a Japanese chef on the same grounds.' 1 6 Two addi-tional cases, however, arrived at different conclusions in circum-stances similar to Nago and Tamura.' 17

The Deputy Associate Commissioner in In re Kobayashi andDoi" 8 denied E status to two restaurant employees." t 9 ApplicantKobayashi was to train and supervise entertainers in Japanese art,culture, and tradition.' 20 Doi was to instruct the wait staff in the artof preparing and serving Japanese foods.' 2 ' Despite the applicants'expertise the Deputy Commissioner denied admission based uponthe determination that the record was devoid of any evidence tend-ing to show that the applicants had even "slight experience in themanagerial or executive field."' 22

The applicant in In re Udagawa 123 was a chef specializing in thepreparation ofJapanese tempura meals. 24 Recognizing that the de-nial of Udagawa's application was in conflict with the Tamura hold-ing, 12 5 the BIA was nonetheless convinced "that Congress did notintend that skilled alien laborers or aliens occupying minor manage-rial posts should be eligible for treaty investor status."' 2 6 The BIA

searching for such a chef for several years. The applicant's employer testifiedthat the applicant is a graduate of a leading Japanese cooking school andexperienced in the art of "Nabemono" cooking. The applicant's employeralso testified that the applicant will teach other employees to carry on the"Nabemono" style of cooking; that the "Nabemono" process can be learnedin one year, and that the applicant intends to return to Japan after one year.

Id. at 447.115 10 1 & N Dec. 717 (Reg. Comm. 1964).116 The Regional Commissioner based his determination on the following:

The applicant herein is engaged as chief cook by Japanese nationals whohave invested substantial sums of money in establishing a restaurant knownfor its excellent Japanese cuisine. He was brought to the United States by hisemployers because of his skill in the preparation of Japanese dishes. He isnot only charged with the responsibility of supervising several subordinatecooks in preparing fried food specialties but also performs the duties of themain kitchen chef in the latter's absence.

Id. at 718.117 See In re Udagawa, 14 I & N Dec. 578 (BiA 1974) (Japanese chef); In re Kobayashi

and Doi, 10 I & N Dec. 425 (Dep. Assoc. Comm. 1963) (Japanese restaurant personnel).118 10 I & N Dec. 425 (Dep. Assoc. Comm. 1963).119 Id. at 427.120 Id. at 426.121 Id.122 Id.123 14 I & N Dec. 578 (BIA 1974).124 The BIA noted the applicant's relevant qualifications:

The applicant appears to have had at least one full year of schooling andtwo years' practical experience as a cook. During the last six months of hiswork experience in Japan he had specialized as a tempura chef and had su-pervised the activities of several other cooks. The applicant had been ex-pected to remain in the United States for as long as two years, during whichtime he was to supervise and train American workers as tempura cooks andwas to assist in the preparation of meals at the restaurant.

Id. at 578-79.125 Id. at 582.126 Id. at 581.

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further held that "[s]killed alien employees should be required toenter in a non-immigrant status that will afford some measure of pro-tection to American labor."' 27

Udagawa echoes the regulatory presumption that a treaty inves-tor will train U.S. workers within a reasonable time to replace thealien technicians.' 28 The BIA expressed concern over admitting anapplicant to a status which might result in a limitless visit to theUnited States. 12 9 If the applicant was to be admitted, the BIA heldthat "it must be via a category which would not utterly circumventthe congressional policy of protecting American labor from undesir-able job competition.") 3 0

V. Analysis

Preventing the circumvention of congressional policy is the pre-vailing concern in the cases prior to Walsh. These cases, however,had only the "responsible capacity" criterion by which to gauge theadmissibility of an alien employee. With the advent of the recodifiedregulations in 1988, a new category of "specially qualified" aliencould be granted E-2 status. 13' Further, prior cases generally in-volved small investment enterprises.' 32 These cases did not have tobroach the issue of whether a large multinational design firm's planto import specialized labor into the United States to fulfill contractobligations with large U.S. automotive manufacturers constituted asubstantial investment. Because Walsh is a case of first impression onthese issues, its impact on congressional and immigration policybears further examination.

Of the two issues discussed in Walsh, the issue of "substantialinvestment" is the most critical. Failure to establish this requirementwould preclude any discussion of employees with "special qualifica-tions" because IAD, Ltd. would not qualify as a treaty investor. Be-cause the enterprise involved in this case was newly formed, the BIAmade its determination based upon an application of the secondprong of the proportionality test, weighing the amount .of the invest-ment against the amount normally considered necessary to establisha viable enterprise of this nature.13 3 With little explanation, the BIAstated that a large investment was not needed to establish a viable

.127 Id.128 9 F.A.M. § 41.51 N3.4-3(d).129 The BIA was concerned that the yearly renewal provision found in 8 C.F.R.

§ 214.2(e) could "be designed to allow a treaty investor an indefinite stay." 14 I & N Dec.'at 581 n.3.

130 Id. at 582.131 22 C.F.R. § 41.51(c) (1989).132 See supra note 82. With the exception of Choi, which involved a gift shop, all of

these cases concerned individually owned restaurants.133 I & N Interim Dec. 3111 at 12.

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business of this kind.' 3 4 The BIA held that evidence showing thatthe enterprise had incorporated in Michigan, rented offices andpurchased office furniture, hired U.S. citizens as employees, estab-lished a corporate bank account, and did business for the parentcompany was sufficient indication that the investment accomplishedits purpose. 1

3 5

Admittedly, "evaluating the investment in relation to theamount normally considered necessary to establish a viable enter-prise is less susceptible to precise calculation."' 136 The Visa Officegrants a great deal of discretion to the Consular Officer's "commonsense" and personal knowledge of the U.S. business scene in the de-termination of whether an enterprise is viable or not. 137 Unfortu-nately, this is an entirely subjective decisionmaking process. Theprocess provides no objective standards for the BIA to review an ap-peal, nor does it provide any clear guidelines for the INS to applywhen reviewing applications.

The only check on this broad grant of discretion is the ConsularOfficer's duty to ensure that "applicants are not, in truth, seeking tocircumvent the numerical limitations on immigrants."' 138 Nowherein its laconic discussion of the viability prong of the proportionalitytest does the BIA apply this check to Walsh. Had the BIA done so, itwould have arrived at the conclusion that a plan to import hundredsof foreign designers circumvented the numerical limitations on im-migrants. To establish the viability prong of the proportionality test,the BIA should have required IAD, Ltd. to show that it not only hadinvested enough money to start up the enterprise, but also had com-mitted funds sufficient to provide for the training of U.S. personnelto eventually replace the foreign designers. 139

The BIA also should have reached a different conclusion when itapplied the "marginal enterprise" test. 140 Applying a very narrowinterpretation of the test to the facts of the case, the Board concen-trated on the language excluding aliens who receive only enough re-turn on their investment to earn a living. 14 1 Noting from pastexperience in supplying designers for automobile firms, IAD, Ltd.expected substantial revenues far above a living wage, and notingthat the chief economist in the Michigan Department of Commerce

134 Id.135 Id.; see supra note 55 and accompanying text.136 9 F.A.M. § 41.51 N5.3-2; see supra note 61.137 9 F.A.M. § 41.51 N5.3-2.138 Choi v. INS, 798 F.2d 1189, 1193 (8th Cir. 1986) (quoting U.S. DEPT. OF STATE, 5

VISA OFFICE BULLETIN No. 20, TREATY INVESTOR GUIDELINES, n.25, reprinted in 59 INT. REL.

264 (1982)); see In re Udagawa, 14 1 & N Dec. 578, 582 (1974); see also supra notes 123-130and accompanying text.

IS9 See infra notes 164-66 and accompanying text.140 9 F.A.M. § 41.51 N5.4.141 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 12-13.

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expected the investment to expand job opportunities, the BIA heldthat IAD, Corp. was not a marginal enterprise.142 The Board unfor-tunately emphasized the wrong standard in this case, however. Thekey concern is not whether a return exceeds an individual applicant'sliving wage, but whether the return on the corporate investment ismarginal. When the drafters of the regulations emphasized "livingwage,""43 they apparently did so in response to the large number ofcases treating the exclusion of individual treaty investors.' 44

If the BIA had applied a corporate standard of marginality to thefacts of this case, lAD, Ltd. would arguably have failed to establish itsstatus as a treaty investor. Purchase orders that reimburse the hourlycompensation of an employee's services at a higher rate"4 5 ought notconstitute a "substantial" investment return within the purview ofthe regulations. The corporate return in this case is merely a skimoff the top of the employee's hourly compensation, and the only wayit can reach a substantial level is through the increased importationof foreign personnel. Further, testimony by an economist that theinvestment would expand job opportunities"46 loses probative valuewhen it is apparent that the openings would be filled by support per-sonnel for the 300 specialists IAD, Ltd. plans to import over the nextfew years. 14 7 There is nothing wrong with hiring these support per-sonnel, but it would be more consistent with U.S. policy if they werehired to support U.S. designers trained for positions currently heldby foreign personnel. Otherwise, the expanded job opportunitiesfor nonskilled personnel hardly compensate for the several hundredskilled positions denied to U.S. citizens.

Another factor the BIA failed to consider was the risk involvedwith the investment. "If the applicant has substantial income fromother sources and does not rely on the investment enterprise to pro-vide a living, the investment may be one of risk and not one of providing amere livelihood." 148 The Department of State expounds on this asser-tion: "The concept of investment connotes the placing of funds orother capital assets at risk in the commercial sense in the hope ofgenerating a return of the funds risked."' 14 9 Funds that are not sub-ject to partial or total loss are not investments in the sense intendedby the Act.150 For example, if the automotive tastes of the U.S. pub-

142 Id.143 9 F.A.M. § 41.51 N5.4.144 See supra note 82.145 The BIA did not discuss the difference between the billed hourly rate and the

purchase rate.146 I & N Interim Dec. No. 3111 at 13.147 See id. at 3. lAD, Corp. expressed no future intention of hiring or training any U.S.

designers for use in the enterprise.148 9 F.A.M. § 41.51 N5.4 (emphasis added).149 Id. § 41.51 N5.1-1.150 Id.

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lic changed overnight and GM decided to end its contract with IAD,Ltd., the British firm would only suffer a nominal loss on its invest-ment. They would conceivably lay off or bring back the designers,terminate their lease, sell the furniture, close out the corporate bankaccounts, and dissolve the Michigan corporation. Ironically, the ap-parent investment made by this corporation is less than some invest-ments made by individual applicants to whom E classification hasbeen denied, and it was proportionately much less of a risk. 1 1 Thethrust of this regulatory scheme is that an investor must feel thesmart of a loss on an investment, otherwise the investment should beclassified as marginal-not substantial.

The BIA also failed to consider whether IAD, Ltd. would "de-velop and direct" the enterprise. 152 While the Board was correctwhen it held that the "develop and direct" requirement did not applyto IAD's employees, it erred by not applying the requirement to thetreaty investor. The emphasis of the "develop and direct" require-ment is not strictly on who has the majority ownership, but on whohas "operational control."' 53 There is no doubt that IAD, Ltd. hasmajority ownership-IAD, Corp. is its wholly owned subsidiary. 15 4

The question is whether their majority interest grants them opera-tional control of foreign investment.15

In light of the Kung holding, operational control of a design firmlike IAD, Corp. would seem to imply that control over designprojects and design personnel is necessary to fulfill the "develop anddirect" requirement. 156 IAD, Corp. apparently exercises very littlecontrol over its design personnel. The designers are assigned to aGM subsidiary to work on GM projects, 157 most likely, according toGM production schedules. This indicates some degree of creativecontrol by GM, but exactly how much control is imposed by the con-ditions of the agreement between GM and IAD, Corp. was not dis-cussed by the BIA. The BIA also ignored GM's leverage innegotiating the hourly wages of the designers. The BIA should haveconsidered these potentially limiting factors in their determinationthat IAD, Ltd. exercised operational control over its investment.

Although the BIA was correct in its decision that employees ofthe treaty investor need not fill a supervisory position in order toreceive E status, it nonetheless failed to consider adequately the rela-

151 See Choi v. INS, 798 F.2d 1189 (8th Cir. 1986) ($40,000 needed to open and man-age a gift shop); In re Kung, 17 I & N Dec. 260 (Comm. 1980) (applicant invested $53,000as sole owner of a franchised restaurant).

152 See 9 F.A.M. § 41.51 N5.5 (requires that the treaty investor be in a position todevelop and direct the investment).

153 Id.154 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 3.155 See supra notes 108-111 and accompanying text.156 See supra notes 90-104 and accompanying text.157 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 3.

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tionship between the investment and the treaty investor's "speciallyqualified" employees. Specially qualified employees do not gain ac-cess to the United States merely to set the stage for a future invasionof foreign specialists. "[Tihe presumption is that the firm will trainU.S. workers in a reasonable period of time to replace the foreigntechnicians."' 5 8 When it becomes apparent that the firm is request-ing additional visas for foreign specialists, the consular officer is toremind the firm of its obligation to train U.S. citizens for thiswork. 159 This presumption was contradicted by the Visa Office in itsreplies to interrogatories from the petitioners in Walsh.' 60 Becausethe Visa Office's interpretations of the regulations were accorded"great deference" in the BIA's analysis of the case' 6 ' they requireclose scrutiny.

The Visa Office stated that it did not consider the number ofapplicants to be significant because "all visa applicants would have tosatisfy the requirement of being either an executive/manager or be-ing an essential employee to the efficient operation of the enter-prise."' 162 The Visa Office defended its reasoning by stating that"[t]he proper and normal operation of those tests would control thenumber of persons contemplated by the treaty provisions."'163

Notwithstanding the normal and proper operation of those tests, noevidence of an intent to control this number of persons is found inWalsh. The BIA indicated that as IAD, Corp. contract commitmentsexpanded, so would the number of foreign designers coming to theUnited States. 164

The Visa Office asserted that there was no "absolute require-ment" to train domestic labor in the skills of an essential em-ployee.' 6 5 The Visa Office qualified this by stating "[t]here is animplicit requirement to train only if the skills are of a nature condu-cive to transfer to the local labor market," and that "[slome skills arenot readily transferred, and therefore, remain essential to the effi-cient operation of the business for an indefinite period of time."' 66

Using this rationale, the Visa Office could have arrived at a differentresult and found error in the issuance of the E-2 visas. If the skillsdescribed in Walsh can be acquired by hundreds of foreign designers,then they can be readily acquired by domestic engineers.' 6 7

158 9 F.A.M. § 41.51 N3.4-3(d).159 Id.160 C. GORDON & G. GORDON, supra note 41, App. 37C-15.161 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 11.162 C. GORDON & G. GORDON, supra note 41, App. 37C at 12.163 Id.164 "IAD, Ltd. expects in the future to bring as many as 300 designers and other re-

lated workers to the United States to meet the demands of United States automotive man-ufacturers." In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 3.

165 C. GORDON & G. GORDON, supra note 41, App. 37C at 15.166 Id.167 The Sixth Circuit in a case factually kindred to Walsh noted: "The reputed 'qualifi-

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Under the foregoing analysis, IAD, Ltd. begins to look more likea foreign employment agency than a treaty investor. This was pre-cisely INS' contention in Walsh.' 68 Under remarkably similar facts,the Sixth Circuit in Sussex Engineering Ltd. v. Montgomery, 169 labeledsuch firms as IAD, Ltd. "specialized temporary service agencies."' 70

Sussex Engineering was a British "professional design and engineer-ing firm specializing in providing design and engineering personnelunder contract to various automotive manufacturers,"' 7'1 one ofwhich was GM. Sussex Engineering petitioned the INS office in De-troit for H-2 classifications for three alien automotive design engi-neers who were to work temporarily designing car body interiors at aGM Tech Center in Michigan.1 72 Conceding that there was a dearthof qualified U.S. automotive designers,' 73 the Sussex court nonethe-less upheld the district director's denial of the petitions on thegrounds that the need for the alien design engineers was ongoingrather than temporary.174

The H classification discussed in Sussex differs essentially fromthe E classification in its temporal nature. While an alien classified asH-2 may only enter the United States to perform temporary servicesor labor,' 75 the E-2 treaty investor may conceivably remain in theUnited States for a limitless amount of time. 176 Despite this differ-ence, the ongoing need for foreign designers was a concern in bothSussex and Walsh. In Sussex, the ongoing need for foreign labor rancontrary to the plain language of the Act. 177 In Walsh, the plan toimport hundreds of foreign engineers over time ran contrary to the

cations' for a senior design engineer are a two-year associates's degree and five to sevenyears experience as a draftsman. A four-year bachelor's degree allegedly makes an indi-vidual overqualified." Sussex Engineering Ltd. v. Montgomery, 825 F.2d 1084, 1086 (6thCir. 1987). The Sussex court also noted that General Motors had initiated a communitycollege program in 1980 to bolster the domestic pool of qualified labor. Id. They ex-pected the first class of 50 domestic design engineers to become available later in thedecade. Id. General Motor's initiation of this program is an indication that these skills areof a nature conducive to transfer to the local market. The progress of this training pro-gram was unfortunately not discussed in either the BIA's opinion in Walsh or in the VisaOffice's replies to interrogatories.

168 In re Walsh and Pollard, I & N Interim Dec. No. 3111 at 5.169 825 F.2d 1084 (6th Cir. 1987).170 General Motors had been using British design engineers, employed by specialized

temporary service agencies and entering the country on H-2 visas to work pursuant to one-year contracts, since at least 1978. Id. at 1086.

171 Id.172 Id.173 Id.174 Id.175 An H-2 alien is defined as "an alien having a residence in a foreign country which

he has no intention of abandoning... who is coming temporarily to the United States...to perform other temporary service or labor if unemployed persons capable of performingsuch service or labor cannot be found in this country .... ".8 U.S.C.§ 1101(a)(15)(H)(ii)(b) (1988).

176 See supra note 129 and accompanying text; 22 C.F.R. § 214.2(e).177 825 F.2d at 1089.

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immigration policy requiring that this need be satisfied by trainingU.S. personnel. 178 As long as GM and other U.S. automotive manu-facturers can import foreign engineers by the hundreds, there is littleincentive to establish training programs for domestic engineers inorder to alleviate the shortage.

VI. Conclusion

Before granting E-2 status to IAD, Corp., the BIA should havereminded the firm of its obligation to train U.S. residents. As evi-dence that the firm would fulfill its obligation, the BIA could haverequired the firm to implement a plan to train domestic engineersand then invest substantial capital into the program. Under such aprogram, the firm could continue to import foreign designers untilenough domestic designers were trained to meet the requirements ofthe firm's contracts with U.S. automotive manufacturers. This wouldbe the most certain indication that the firm was not merely a tempo-rary employment agency, but a substantial treaty investor.

Although the BIA's decision in Walsh has opened a new door forforeign investments in the United States, it has also opened a doorthrough which foreign employment agencies masquerading as treatyinvestors can flood specialized foreign labor into the U.S. labor forcewhile reaping the benefits of their nonimmigrant investor status.Walsh confounds the proposition that "skilled employees should berequired to enter in a nonimmigrant status which affords some mea-sure of protection to American labor."' 179 Firms that have been de-nied H status now have a way to skirt the holding in Sussex merely byincorporating in the United States. The potential for abuse is great.Absent a revision to the regulations which specifically addresses thisnew issue in the law, the problem can only be remedied by judicialconsideration that is mindful of legislative purpose on a case-by-casebasis. 80 Until then, U.S. labor remains susceptible to the designs ofclever foreign draftsmen.

PHILLIP KEVIN WOODS

178 The Foreign Affairs Manual states that:[T]he presumption is that the firm will train U.S. workers in a reasonableperiod of time to replace the foreign technicians. If it is apparent that theemploying firm is repeatedly requesting visas for foreign technicians, theconsular officer should remind the firm that it has an obligation to train U.S.residents for this work and that the absence of effective training programswill be a negative factor in examining future visa applications for such for-eign technicians.

9 F.A.M. § 41.51 N3.4-3(d).179 In re Udagawa, 14 1 & N Dec. 578, 581 (BIA 1974).180 Kun Young Kim v. District Director, 586 F.2d 713, 717 (9th Cir. 1978).

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